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Types of Home Insurance Coverage

Home insurance covers private homes against damage or destruction. While new homeowners might initially be put off by this extra monthly expense and question its worth, there is no doubt that homeowners' insurance is a valuable and necessary part of home ownership. Because mortgage lenders always require the purchase of home insurance as a condition of providing a home loan, it's easy for new homeowners to have an insurance policy without really understanding its provisions; however, given its importance in the event of damage to the home, it's well worth taking a few minutes to learn the basics of homeowner coverage. It should be noted that this information focuses on insurance coverage in the United States.

There are seven standard home insurance packages; these are designated HO-1, HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8. Of these, the most commonly purchased policy is HO-3. It covers the home, structure, and contents in the case of damage or destruction. Equally important, it usually offers liability coverage for visitors who are injured or have an accident while on the property. The specifics of HO-3 policies vary widely and will be spelled out in very specific detail in the individual policy. This type of coverage is often called ‘all-risk' insurance.

After HO-3, the most commonly purchased forms of home insurance are HO-4, which covers renters, and HO-6, designed for condominium owners. In each case, the policy is written to cover the areas not covered by blanket policies written for the apartment or condo complex. In the case of condo coverage, the part of the building owned by the insured and the property housed therein are insured. For renter's coverage, the insured's personal property is covered against theft or damage. In both cases, the policy also typically offers liability coverage, sometimes extending as far as 150 feet away from the covered unit. The specifics of HO-4 and HO-6 coverage vary widely depending on the specific policy and the existing policy in place for the complex as a whole.

The remaining policy options are essentially variations on the three more common forms, with the exception of HO-8, which allows owners of older homes that would have a higher replacement cost than the market value, to insure them at the more affordable market value rate.

In addition to the standard policy packages listed above, homeowners in some areas might qualify for supplemental insurance, such as flood or hurricane insurance. These add-ons are called riders and add to the monthly cost of the insurance, but they can be worthwhile investments in high-risk areas.

One important task every homeowner should complete is a home inventory. This list of furnishings and belongings is essential when filling out claims for theft or loss due to fire or other destruction. A photo or video log of major furnishings is also helpful, and recording product serial numbers whenever possible is also important.

Getting a good home insurance policy should be at the top of every homeowners priority list.

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